Assignment

Submitted By:
Fatema Sharmin
ID: 2022916
Course: MBA 504

Date of Submission: 16th March, 2020

This question is about business performance of Gold Leaf, or in short “GL”. BATB is the manufacturer
of Gold Leaf. They are specialized in producing and sales cigarette in Bangladesh for the domestic
market. Gold Leaf expects to increase its total sales at 2% per year on average. It also wants to increase
its unit profit as well as the total revenue. For that BATB increases price of per pack (pack of 20 sticks)
regularly.
BATB faced a tough competition from Benson & Hedges, imported brands of cigarette. Dhaka Tobacco
is not a premium brand but an indirect competitor of BATB. We have to assess the changes in business
performance over last 12 years, between 2005 and 2016. Here 2005 is the base year and 2016 is the
terminal year.
We have to calculate the average cost or unit cost of production and unit profit between 2005 and 2016.
Also, we have to find out the changed cost and the annual rate of change of these years at GL. After
finding all the results, we have to compare the overall performance of BATB with Dhaka Tobacco, an
indirect competitor within industry.
For analyzing business performance we shell use the following formulas.
Total cost
Unit cost =
Total Units Produced /sales
*Total cost = Variable cost + Fixed cost
Profit
Unit profit =
Sales
Total Revenue = Total Sales × Price
Total Profit = Total Revenue - Total Cost

Answers of the Assignment Task-1

Question- a:
Examine data in Table-1 visually. What has been BATB’s policy regarding price of Gold Leaf (a
pack of 20 sticks) between 2005 and 2016?

Answer: By visualizing Table-1 we can see that, price of Gold Leaf (a pack of 20 sticks) of BATB was
BDT 100 in 2005 and BDT 160 in 2016.

Change in unit price is calculated below:

Change in price = BDT (160 – 100) = BDT 60

Annual Average Rate of Change in price = {(60/100) × 100)} / 12 = 5%

So, we can clearly see from the calculation that, the unit price is gone up between 2005 and 2016.
Question- b:
Has BATB’s overall performance improved between 2005 and 2016 in terms of sales, revenue and
total profit?

Answer: Now I’ll investigate overall performance improvement between 2005 and 2016 in terms of
sales, revenue and total profit. The calculation given below-

In 2005,

Total sales (million sticks)

Sales =
Per pack sticks
26500
= 20
= 1325 million packs
Given that,
Price/pack = BDT 100 & Total cost = BDT 105000

So,
Total Revenue = Total Sales × Price
= 1325 million packs × BDT 100
= 132500 million BDT

Total Profit = Total Revenue - Total Cost

= BDT 132500 - BDT 105000
= 27500 million BDT
In 2016,

Total sales (million sticks)

Sales =
Per pack sticks
31300
= 20
= 1565 million packs
Given that,
Price/pack = BDT 160 & Total cost = BDT 209000

So,
Total Revenue = Total Sales × Price
= 1565 million packs × BDT 160
= 250400 million BDT

Total Profit = Total Revenue - Total Cost

= BDT 250400 - BDT 209000
= 41400 million BDT
Change in total sales = (1656 – 1325) = 240 million packs
Annual average rate of change in total sales = {(240 / 1325) × 100} / 12 = 1.51%

Change in total revenue = (250400 – 132500) = 117900 million BDT

Annual average rate of change in total revenue = {(117900 / 132500) × 100} / 12 = 7.42%

Change in total profit = (41400 – 27500) = 13900 million BDT

Annual average rate of change in total profit = {(13900 / 27500) × 100} / 12 = 4.21%

Question- c:
Has the company’s profitability (unit profit) changed significantly between 2005 and 2016?
(Compare years 2005 and 2016 only) if yes, into which direction? To what extent?

Answer: Now I’ll investigate change into profitability (unit profit) between 2005 and 2016 of BATB.
The calculation given below-

In 2005,

Given that,
Total Profit = 27500 million BDT and Sales = 1325 million packs

Profit 27500 million BDT

Unit profit =
Sales
= 1325 million pack
= BDT 20.75 per pack

In 2016,

Given that,
Total Profit = 41400 million BDT and Sale = 1565 million packs

Profit 41400 million BDT

Unit profit =
Sales
= 1565 million pack
= BDT 26.45 per pack

Change in unit profit = (26.45 – 20.75) = BDT 5.70

Annual average rate of change in unit profit = {(5.70 / 20.75) × 100} / 12 = 2.29%
From the above calculation, it is very much clear that there is a slight increase in unit profit of
2.29% between 2005 and 2016.

Question- d:
What has happened to the cost of production over time between 2005 and 2016?

Answer: Calculation of the cost of production over time between 2005 and 2016 is given below:

In 2005,
Given that,
Total Cost = 105000 million BDT and Sales = 1325 million packs

Total cost 105000million BDT

Unit cost =
Sales
= 1325 million pack
= BDT 79.25 per pack

In 2016,
Given that,
Total Cost = 209000 million BDT and Sale = 1565 million packs

Total cost 209000 million BDT

Unit cost=
Sales
= 1565 million pack
= BDT 133.55 per pack

So, we can clearly see from the calculation that, the unit cost is gone up between 2005 and 2016.

Change in unit cost of production is calculated below:

Change in unit cost = (133.55 – 79.25) = BDT 54.30

Annual average rate of change in unit cost = {(54.30 / 79.25) × 100} / 12 = 5.57%

Question- e: What is the weak area of the company?

Answer: After doing all the above calculations we find a major weakness of BATB that is the
companies high production cost that is 5.57% per year. High production costs affect on products prices
of the company. BATB charges high price of Gold Leaf (a pack of 20 sticks) comparatively then other
companies. High price of products decreases the amount of total sales that affects on company’s revenue
as well the profit also affected by it.
 Question- f: Compare performance of BATB with that of Dhaka Tobacco.?
Question-g: What is your recommendation to BATB management for improving its business
performance?

Answer: From the above calculation, it is clear that there is a significant change occurs in BATB over
last 12 years between 2005 and 2016. Unit cost of production of BABT is increased since 2005, that is
BDT 54.30 per pack cigarette. BATB’s cost of production increased by 5.57% on average per year for
last 15 years whereas Dhaka Tobacco’s average cost of production rate is only 3.5%. From the above
questionnaire we get to know that the Sales of Dhaka Tobacco has growing up 2.5% per annum on
average. This is higher than BATB’s average sales, which is only 1.51% per annum. The unit profit of
Dhaka Tobacco increased by 7% on average per year. BATB’s unit profit is lower than Dhaka Tobacco
which is only 2.29% per year. Dhaka Tobacco’s prices successfully push up by 10% and in terms of
BATB, its price push up only 5% for last 15 years.

So, we can say that the overall performance of Dhaka Tobacco is much better than BATB.

Recommendation: Gold Leaf is a premium cigarette brand in Bangladesh manufactured by BATB. The
management of BATB is concerned about their rate of growth in sales in domestic market. From the
above calculation, it is clear that there is a significant change occurs in BATB over last 12 years
between 2005 and 2016. But still the company should work on improving their business performances.
By analyzing given data table-1, we know that BATB’s production cost is much high than other
competitors. So, if the price of Gold Leaf increased by 1 Taka per pack than the production cost will
gone up. Increasing price may get some revenue but it will also decrease the total sales comparatively
than previous year. The total profit may also be affected by the higher production cost.

So, for now management of BATB should think about how to reduce production cost of the company
rather than increasing price for making profit.
 Answers of the Assignment Task-2

Answer (a)
By examining data table-2, we see that sale of Gold Leaf cigarette depends on various factors. In the
table-1 we see that the annual sales increase between 2005 and 2016.
Here sale is the dependent variable (It is something that depends on other factors). On the other hand Per
capita income of people; Rate of literacy of the people; average rainfall of the country; VAT &
supplementary duty; Yearly sale of Benson & Hedges cigarette and Price of Benson & Hedges cigarette
every year are the independent variables (It is a variable that stands alone and isn't changed by any other
variables).
Here sale of Gold leaf (Y) and the independent variables are expressed by (X). The symbolic expression
is:
Y= f(x) 
The operational expression is,
Y = a + bx
Here,
X1 = Per capita income of people
X2 = Rate of literacy of the people
X3 = Average rainfall of the country
X4 = VAT & supplementary duty
X5 = Yearly sale of Benson & Hedges cigarette
X6 = Price of Benson & Hedges cigarette every year

Independent variable causes a change in Dependent Variable and it’s not possible that Dependent
Variable could cause a change in Independent Variable. From the given data we can interpret the
relationship between sales with other independent variables:
 If per capita income of people increased than the sales of Gold Leaf will be also increased.
(positive relationship)
 If the rate of literacy increased people will quit smoking that will decrease total sales. (negative
relationship)
 During rain people will consume more cigarettes that will increase total sales. (positive
relationship)
 Taxes & VAT will increase more production cost that will decrease total sales. (negative
relationship)
 Increasing sales of Benson and Hedge will causes to decrease the sales of Gold Leaf. (negative
relationship)
 Increasing price of Benson and Hedge will causes to increase the sales of Gold Leaf. (positive
relationship)

Answer (b)
 For fit model – A, with all possible independent (explanatory) variables I use Multiple regression
model. The regression model has been run by statistical software SPSS. All the Output tables of SPSS
are given below:

Model Summary
Model R R Square Adjusted R Std. Error of
a
ANOVA
Square the Estimate
Model
1 .998a Sum of
.996 df
.993 Mean112.339
Square F Sig.
Squares Rainfall, Literacy,
a. Predictors: (Constant), BnH_Price,
Regression
PC_Income, BnH_Sales21240946.591 5 4248189.318 336.623 .000b
1 Residual 75720.076 6 12620.013
Total 21316666.667 11
a. Dependent Variable: Sales_Goldleaf
b. Predictors: (Constant), BnH_Price, Rainfall, Literacy, PC_Income, BnH_Sales

Coefficientsa
Model Unstandardized Coefficients Standardized t Sig.
Coefficients
B Std. Error Beta
(Constant) 15786.668 5780.008 2.731 .034
PC_Income 31.651 4.741 3.577 6.677 .001
Literacy -496.925 52.463 -2.663 -9.472 .000
1
Rainfall -2.608 3.873 -.043 -.673 .526
BnH_Sales -.009 .150 -.041 -.062 .952
BnH_Price -4.769 33.106 -.066 -.144 .890
a. Dependent Variable: Sales_Goldleaf

Here, at first I examine the Model Summary table that I get From SPSS analysis. R 2 is the coefficient of
determination. We found that adjusted R square (R2) =.993 or 99% which is higher than 30% that means
the model is statistically highly significant. It means that the model can explain 99% chances in the sales
of Gold Leaf. There is high level of co-relation between the independent and the dependent variables.

SPSS has excluded VAT & SD because of it is constant; that’s means the values will remain unchanged.
 Answer (c)
Here by the SPSS software, we choose their three independent variables these are PC Income, Literacy
and Price of Benson & Hedges cigarette every year. That will choose the highest R2 (R Square).
Model Summary

Model R R Square Adjusted R Std. Error of the

Square Estimate

1 .998a .995 .993 113.002

a. Predictors: (Constant), BnH_Price, Literacy, PC_Income

ANOVAa

Model Sum of Squares df Mean Square F Sig.

Regression 21214511.800 3 7071503.933 553.787 .000b

1 Residual 102154.866 8 12769.358

Total 21316666.667 11

a. Dependent Variable: Sales_Goldleaf_Million_Sticks

b. Predictors: (Constant), BnH_Price, Literacy, PC_Income

Coefficientsa

Model Unstandardized Coefficients Standardized t Sig.

Coefficients

B Std. Error Beta

(Constant) 14880.185 380.258 39.132 .000

PC_Income 32.715 1.929 3.697 16.959 .000

1
Literacy -506.180 24.239 -2.713 -20.883 .000

BnH_Price -12.934 13.262 -.180 -.975 .358

a. Dependent Variable: Sales_Goldleaf_Million_Sticks

Here, at first I examine the Model Summary table that I get From SPSS analysis. R 2 is the coefficient of
determination. First we notice that the difference between R 2 and adjusted R2 is not too much. Adjusted R
square (R2) = .993 or 99% and R2 = .995 which is pretty good. That means the fitted model contains
relevant variables.

In the above case, Adjusted R square (R2) = .993 implies that the probability that we chosen the right
independent variables in fitting the model is 99%.

When R2 < 40%, we should fit another model with different set of independent variables. In the above
case, (R2) = .995 means the model is statistically highly significant model. There is high level of co-
relation between the independent and the dependent variables. R 2 also indicates the predictive power of
the fitted model.
Answer-d:
Lets examine the coefficient table as we get it from SPSS fitted model-B
Coefficientsa

Model Unstandardized Coefficients Standardized t Sig.

Coefficients

B Std. Error Beta

(Constant) 14880.185 380.258 39.132 .000

PC_Income 32.715 1.929 3.697 16.959 .000

1
Literacy -506.180 24.239 -2.713 -20.883 .000

BnH_Price -12.934 13.262 -.180 -.975 .358

a. Dependent Variable: Sales_Goldleaf_Million_Sticks

a. Constant: The estimated value 14880.185 is constant, which means that nearly 14880.185 million
cigarette will be sold irrespective of the influence of the predictors or independent variables.
b. Per capita income: The estimated value of the coefficient of per capita income is 32.715 that means
sales of per pack Gold Leaf cigarette will increase by 32.715 million per pack if the average annual
income of people is increased by 1 tk per capita. The relationship with the dependent variable is
positive. The sign of coefficients line with our sig.t =.000 or 0% which is acceptable. It means that this
relationship between PC Income and sales of Gold Leaf is significant.

c. Literacy: The estimated value of the coefficient of rate of literacy of people is (-) 506.180. The sign
of coefficients of independent variable of literacy is positive (+) which is in line with our assumption
sig. t =.000 or 0% (which is acceptable if less than 5%). It means that relationship between sales of Gold
Leaf and Literacy is significant. The value of coefficient (-) 507.581 means that sale of GL will fall by
about 507 million sticks for increasing in literacy by 1 taka.

d. Price of Benson & Hedges cigarette every year: The estimated value of the coefficient of price
Benson & Hedges cigarette is (-) 12.934. The sign of coefficients of independent variable price of
Benson & Hedges cigarette is positive (+) which is in line with our assumption sig. t =.358 or 3.58%
(which is acceptable if less than 5%). It means that relationship between sales of Gold Leaf and price of
Benson & Hedges cigarette is significant. The value of coefficient (-) 12.934 means that sale of GL will
fall about 13 million sticks for increasing in Benson & Hedges cigarette by 1 taka.

In model - B 99% sale is explained, The model is reliable model because it is higher than
Answer-e: the cut of 30% it means the model is good for fitness and a reliable model.
Now we have to examine Model- C, a bi-variate regression model where sales of Gold
Answer-f: Leaf is the dependent variable and Price of Gold Leaf is the independent variable.

Model Summary
Model R R Square Adjusted R Std. Error of the
Square Estimate
a
1 .783 .612 .574 909.005
a. Predictors: (Constant), Price_Goldleaf

ANOVAa

Model Sum of Squares df Mean Square F Sig.

Regression 13053759.112 1 13053759.112 15.798 .003b

1 Residual 8262907.555 10 826290.755

Total 21316666.667 11
a. Dependent Variable: Sales_Goldleaf
b. Predictors: (Constant), Price_Goldleaf

Coefficientsa

Model Unstandardized Coefficients Standardized t Sig.

Coefficients

B Std. Error Beta

(Constant) 20553.131 1925.094 10.676 .000

1
Price_Goldleaf 55.805 14.040 .783 3.975 .003
a. Dependent Variable: Sales_Goldleaf

By examining from the table we can see that here adjusted R 2 .574 or 57.4% which is greater than the
cut off 30% that means power of fitted model is good.

Significant of F statistics is only .003 which is less than the tolerance level .05 or 5%. It implies that
there is only 3% chance that there is no relationship between the sales of Gold Leaf (Dependent
Variable) and Price of Gold Leaf

The significant of Constant is Positive, which is acceptable. It implies that 20553 million sticks will be
sold irrespective of the influence of independent variable.

The significant of price of Gold Leaf is positive which our assumption is not in line, sig.t statistics is .
003 or 3 % (being less than 5%). It means price of Gold Leaf and sales of Gold Leaf is significant.
55.805 is a coefficient value found, it means that 55805 million sticks for increasing price of Gold Leaf
sold by 1 taka
 Answer-g:

Coefficientsa

Model Unstandardized Coefficients Standardized t Sig.

Coefficients

B Std. Error Beta

(Constant) 20553.131 1925.094 10.676 .000

1
Price_Goldleaf 55.805 14.040 .783 3.975 .003
a. Dependent Variable: Sales_Goldleaf

We can write estimated regression equation as follows based on the coefficient table as above:

Y= a + bx

Here,

a = 20553.131
b = 55.805
x = 10
So

Y= a + bx 
= 20553.131 + 55.805x

Increasing by Gold Leaf pack (20 sticks) by 10 taka in 2017,

Constant = 20553.131/20

= 1027.65 or 1027 million packs

Price of Gold Leaf= 55.805/20

= 2.79 or 2 million packs

So,
Y=1027+ (2×10)
=1047 million packs
So it is estimated that price of Gold Leaf (Pack of 20 sticks) by 10 taka rise. Then 1047 millions of Gold
Leaf will be sold in 2017.